Waidale Rams

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Monday, June 13, 2016

The director’s responsibility to the shareholder?


There are a number of legal obligations as set out in the Companies act, which anyone can go and look up, but what I want to address is what I consider the director’s core responsibility, namely the one to the Company’s shareholders.

Most would be directors go around campaigning on a particular mandate, get elected to the Company (presumably on such a mandate), but then we never hear from them again, why is this? 

Some classic examples in recent years is the Meat Industry Excellence candidates elected to the Silver Fern Farms (“SFF”) and Alliance Meat companies:  publicly at least you have essentially heard nothing from them and moreover as we have seen with SFF they have actually gone against the very mandate they were elected on.  Now there may be good reasons for this as one of the biggest problems with being on the outside and professing how things should change is that you are not privy to all the information and facts the entity has and moreover there may be good reasons why the mandate upon which you campaigned cannot be implemented, perhaps they were simply stupid ideas!!!!

My problem, in both instances above, is the failure of directors to advise their shareholders why their ideas can’t be implemented, or why things are different to what they thought.  It’s simple communication.  If we are kept fully informed of what is going on we are more likely to accept the situation, albeit that we are unhappy with it.  Commercial sensitivity is often cited as the reason for saying nothing which is just a smokescreen for not fulfilling this core role to the shareholder, in my experience, in general you can still be kept informed without disclosing the detail that may jeopardise a company’s operations.

The SFF meetings last year re the proposed Joint Venture (“JV”) were another example of how directors forgot about the core responsibility to the shareholder, those meetings were sales pitches for the joint venture to go ahead, not information dissemination to shareholders so they could be fully informed before voting.    At the meeting I attended, we were advised us of the positives of the JV, but what of the negatives and lets face it there are fair few negatives: 60/40 split cooperative always in control, but 50 50 split potential to lose control just one example.    Moreover an SFF banker explaining why they were in favour of the JV as opposed to making money by lending to SFF as it was sold at the meeting, may have been helpful.   A director is not a salesperson; a director is a facilitator and disseminator of information both positive and negative to the shareholders.

Finally, and speaking generically, directors, councillors etc, need to continually remind themselves that they must act in the best interests of all its shareholders (or constituents etc) and if not all, then in the best interests of the majority.   It is not a forum to promote what suits you best, but unfortunately there are directors, with vested interests, who endeavour to push through things that aren’t in the best interests of all or the majority.  It’s a simple basic tenet, namely that all those you represent should be treated fairly, something that should go without saying, but I think is sometimes forgotten.

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